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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Tiong Woon Corporation Holding (SGX:BQM) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Tiong Woon Corporation Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.055 = S$22m ÷ (S$519m - S$107m) (Based on the trailing twelve months to June 2024).
Thus, Tiong Woon Corporation Holding has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 12%.
See our latest analysis for Tiong Woon Corporation Holding
In the above chart we have measured Tiong Woon Corporation Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Tiong Woon Corporation Holding .
What Does the ROCE Trend For Tiong Woon Corporation Holding Tell Us?
Tiong Woon Corporation Holding has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 109% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
The Bottom Line On Tiong Woon Corporation Holding's ROCE
To sum it up, Tiong Woon Corporation Holding is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 62% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Tiong Woon Corporation Holding can keep these trends up, it could have a bright future ahead.